Terms used in insurance policies often have specific definitions. Likewise, there are terms common to various segments in the industry itself that may not be as obvious as they appear. In this glossary we look at terms commonly used when dealing with insurance fraud.
Agent Fraud: Fraud perpetrated by an agent, either by issuing a declarations page or certificate of insurance while pocketing the premium, or providing a carrier with false information in order to provide an insured with a lower premium, or backdating a policy prior to a loss date.
Air Bag Scams: There are a variety of scams where deflated, counterfeit or even no airbags are used in the repair of a vehicle. The shop pockets the funds from the carrier while not providing the service paid for. Insured is driving along. Another car careens across the lane and collides. The airbags should protect the insured and their family. The airbags don't deploy. They're bogus. Examples:
The pullout: Body shops insert a cheap knockoff airbag in place of the deployed one. The insurer is billed for the real thing. The switch: Body shop steals the undeployed airbag to resell then insert a fake or even rags and trash to fill the void. Used & salvaged vehicles: Scammers install bogus or no airbags in used or salvaged vehicles after being totaled in a flood or crash.
Arson: Deliberately setting property on fire; the illegal burning of a building or other property, the crime of setting fire to something.
Arson for Hire: When an insured hires someone to set fire to a building, vehicle, or other property in order for the insured to file a claim for the damaged property.
Arson for Profit: Personal dwellings or commercial properties are destroyed by fire for the sole purpose of financial gain. Insureds sometimes act alone or in concert with agents, highly organized crime rings specializing in arson or simply hired someone to set the fire. An insured may set fire to a property because he is behind on payments and plans to use the insurance money to pay off his debts.
Attorney Settlement Scams: Situations where an attorney acts unethically in handling a settlement. Examples:
Giving a client only a partial amount of the settlement received and keeping the rest for himself. Forging signature(s) on settlement checks. Not truthfully presenting the claim.
Auto Repair Scams: When repair shops act unethically for their own financial gain when dealing with insurance companies. For example: Padding: Inflating repair bills beyond the original estimate or repairs for fake or unrelated damage. Counterfeit parts: Installing counterfeit, used or substandard parts, while charging for new parts. These parts may fail while on the road. Shoddy or no work. Cutting corners or failing to do agreed to repairs.
Backing: A staged accident where the perpetrator positions his vehicle in such a way that the victim backs into the other vehicle, and the perpetrator claims damages and injuries that are filed against the victim's insurance.
Churning: Churning occurs when agents falsely tell life insurance customers that they can buy additional insurance for no cost by using built-up value in their current policies. Nevertheless, the cost of the new policies frequently exceeds the value of the old ones. With P&C policies, churning occurs when an agent moves an insured to another carrier in order to earn commission on that account. An insurer replacing a policy with a new policy for an existing customer is also considered churning.
Contractor Scams: There are many scams perpetrated by contractors against insureds in order to obtain funds for nonexistent damage, or to take advantage of insureds in general. These include "Storm Chasers" who appear after an event offering "affordable" repairs, lowball bids like "special post-disaster deals" or "limited time offers"; shoddy repairs, using substandard material; inflating the claim causing the insured to possibly lose all coverage; asking for large up-front payments – then they disappear while doing little or no work; convincing insureds to sign over their claim and may make inflated repair claims behind the insured's back. Another common contractor scam is roofers telling insureds they had hail damage and they can get them a free roof, or chimney sweeps telling insureds they had a chimney fire and should file a claim.
D Ditching: also known as owner give-up, this is getting rid of a vehicle to cash in on an insurance policy or to settle an outstanding loan. The vehicle is normally expensive and purchased with a small down payment. An insured may be late on payments for his loan, and looking for a fast way out. The vehicle is reported stolen, although in some cases, the owner just abandons the vehicle, hoping that it will be stolen, stripped for parts, or taken to an impound and destroyed. The scheme sometimes involves homeowner's insurance for the property that was "stolen" in the vehicle.
Drive down: When someone waves a person on only to collide with her once she starts to proceed, and the waver denies having motioned for the driver that the way was clear.
E Examination under oath (EUO): An examination by the carrier of the insured; it is taken from an insured under oath and in the presence of a court reporter. The carrier asks questions pertinent to the claim involved, and helps a carrier determine what happened in the loss and whether or not there is a claim that needs to be paid
False swearing: When an insured lies under oath. If the insured lies under oath the policy is void whether the lie is in a proof of loss or at an examination under oath. The lie could be on the proof of loss statement, statements made to the carrier about the claim, statements made in the examination under oath, statements made on the application that the insured knows to be false. The difference between fraud and false swearing is that since false swearing involves a false statement made under oath, it is harder for the person to back off from the false statements when confronted.
Fictitious Policies: When false policies are created for an agent's benefit. They may be created in order to improve the number of policies written, or to generate commissions.
Fraud: In general, the crime of using dishonest methods to take something valuable from another person (Merriam Webster Online).
Black's Law Dictionary, 6th Edition, defines fraud as an intentional perversion of the truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or to surrender a legal right; a false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury.
Free money: "Injured" workers secretly take a job or open a business. They claim lost wages from their workers comp policy — while illegally earning extra money.
Hard fraud: the deliberate faking of an accident, injury, theft, or intentionally committed arson or some other loss in order to collect money wrongly from insurance companies. Hard fraud involves criminal activities such as staging a car accident, injury, arson, loss, break-in, or someone writing false bills to Medicare to illegally receive money from insurance companies.
Inflated Billing: Billing for non existent injuries, unnecessary tests or medical procedures by any medical facility, doctor, chiropractor, laboratory, etc.
Inflated Damages: This occurs when the reported damages are inflated; while this often happens with auto shops, it can occur in any industry providing a service to an insured. Similar to padding.
Insurance fraud: When someone deceives an insurance company in order to collect money to which they are not entitled. It may be perpetrated by false statements on the application, submission of a claim, proof of loss reports submitted to carriers,
Malingering: The worker pretends they are still disabled — even though they are healed and can return to work.
Misclassification: Misclassifying the type of workers to obtain workers' compensation coverage at a lower premium. (Example: classifying roofers as clerical, etc.) See Premium Fraud.
Material Misrepresentation: Misrepresentation on an application or claim that would affect the insurer's ability to provide coverage or handle a claim. For example, an insured states on an application that the home is in good condition and there are no hazards when the insured knows the house is in poor condition with a leaky roof, broken steps, and other hazards that had the insurer known about at the time, the insurer would not have issued a policy to that insured. N
Off the Job/Monday Morning: Workers get injured off the job, but say they're hurt at work so their workers comp policy covers the bills. An employee may report an injury first thing Monday morning when he was injured over the weekend in a sports activity.
Organized Fraud: There are many types of organized fraud. There may be rings composed of the united efforts of a lawyer, a capper, a doctor, and the claimant in order to generate bogus or inflated medical claims for workers' compensation cases or auto and other accidents.
Panic Stop: A type of staged accident where the driver in front begins to move. As the second vehicle starts to move, the first vehicle slams on the brakes. Injuries may be exaggerated or falsified in order for the driver of the first vehicle to get more funds from the insurer. The driver of the first car may wait until the driver behind him is distracted and then slam on the brakes.
Paper Boats: A claim is filed for a boat that sank, but the boat never actually existed. It is not difficult to register a boat based on a bill of sale. After a period, a loss is claimed for the sinking of the boat. It is difficult to prove that the boat didn't exist or was sunk intentionally
Paper property: when property exists only on paper, either due to the property being returned to the store or the documentation being faked from the beginning.
Past Posting: Past posting is a scheme in which a person becomes involved in an automobile accident, but doesn't have insurance. The person gets insurance, waits a little bit of time, reports the vehicle as being in an accident, and then collects for the damages. With the ability to buy insurance online, it is easy to buy insurance right after the accident and then file a claim later.
Pedestrian Vs Auto: When a pedestrian deliberately walks in front of a slow moving vehicle in order to claim that she was struck by the auto and file a claim for injuries.
Phantom driver: when an insured hits an object but reports it to the carrier as a hit and run by a phantom vehicle; the insured has little description of the vehicle and there are never any witnesses.
Phantom Vehicles: The certificate of title is a document that shows the legal ownership of a vehicle. Even though it is not absolute proof that a vehicle exists, it is the basis for the issuance of insurance policies. Collecting on a phantom vehicle has been shown to be easy to do.
Phony insurance: An agent sells fake coverage from a phony insurer. Insured receives a forged policy or proof of insurance. The insured may be out significant amounts of money if he has a loss and only then discovers he is uninsured.
Phony or Inflated Thefts: A home or car that has been burglarized is the basis for filing a claim for recoveries of monies lost. Similar to padding, except the items never existed.
Premium Fraud: This entails misrepresenting information to the insurer by employers to lower the cost of workers' compensation premiums. See Misclassification.
Property Theft from Vehicle: Suspicious theft of personal property while stored in a vehicle or motor home (commonly claimed under a homeowner's insurance policy).
Q Qui tam: (applicable to California only) California's Insurance Fraud Prevention Act allows insurers or other parties to file whistleblower lawsuits — called qui tam actions — that can result in awards of three times the amount charged plus penalties of $5,000 to $10,000 for each fraudulent bill. The law includes a first-to-file rule, which generally means no other actions can follow after an initial lawsuit is filed.
Reckless disregard: Reckless disregard for the truth or rights of an insurer – can be defined as stating something as a fact that the insured has no reliable knowledge about. The insured may state the sofa was worth $2,000 without having any true knowledge of its value. Reckless disregard ignores any potential consequences of stating a falsehood. This is different than an innocent overestimate.
Right of Way: Suspect driver appears to give right-of-way to victim driver, usually in an intersection, causing vehicles to collide; suspect later claims no right-of-way was offered.
Shady helpers: A stranger approaches the crash scene, or phones you right after. They try to steer you to a medical clinic, body shop or lawyer. The insured is being set up for bogus insurance claims.
Sliding: An agent or insurer secretly slips in extra coverage. The premiums increase. Motor club memberships, accidental death coverage and guaranteed renewable life insurance are some examples.
Slip & Fall: The victim claims to have fallen on something slippery on the floor when there was nothing there or they did not fall. Often no witnesses are present.
Soft fraud: Is considered an opportunistic fraud. Soft fraud occurs when a policyholder exaggerates an otherwise legitimate claim or when an individual applies for an insurance policy and lies about certain conditions or circumstances to lower the policy's premium. For example the padding of a legitimate claim with items that weren't really damaged or injuries that were not sustained.
Soft tissue injuries: Injuries to soft tissues in the body such as muscles, ligaments and tendons. They often occur from a blow to the area or a strain or sprain, but do not show up well on x-rays and other imaging tests.
Staged Accidents: Staged accidents are schemes in which an accident is predetermined to occur on a vehicle. The schemes are organized by rings and the culprits move from one area to another. They often use the same vehicle over and over, which is sometimes what causes their scheme to be uncovered.
Stolen premiums: An agent pockets the insurance premiums instead of buying promised coverage.
Surety and Performance Bond Schemes: Surety and performance bonds guarantee that certain events will or will not occur. An agent might issue worthless bonds to the insured for high-risk coverage in hopes that a claim is never made. If a claim is made, the agent might pay it off from agency funds, delay the payment, or skip town.
Swoop and squat: a driver pulls in front of the insured and slams on his brakes; the insured doesn't have time to stop and rear ends the fraudster. The fraudster may also stop suddenly in busy traffic, or at an intersection or an on-ramp. Many times the fraudster also claims to have neck and back pain, creating both a collision and injury claim against the insured.
Towing Bandits: Even a legitimate accident may lead to fraud if "towing bandits" haul the damaged vehicle to a crooked body shop for shoddy, inflated repairs. Beware of trucks which "conveniently" arrive to help.
Twisting: This is the replacement, usually by high-pressure sales techniques, of existing policies for new ones. The primary reason, of course, is for the agent to profit, since first-year sales commissions are much higher than commissions for existing policies
Under Reported Wages: Misrepresenting payroll to obtain workers' compensation coverage at a lower premium. (Example: Over-reporting wages as if employees are experienced journeymen with less likelihood of injury and thus allowing for lower premiums or under-reporting payroll to keep premiums lower.)
Vehicle Smuggling: This is a scheme that involves the purchase of a new vehicle with maximum financing. A counterfeit certificate of the vehicle's title is made showing that it is free and clear. The vehicle is insured to the maximum, with minimum deductible theft coverage. It is then shipped to a foreign port and reported stolen. The car is sold at its new location and insurance is also collected for the theft.
Vehicle Identification Number (VIN): Switching A VIN is a fraud scheme in which a wrecked vehicle is sold and reported as being repaired. The vehicle is not actually repaired; instead, the VIN plate is switched with that of a stolen vehicle of the same make and model.
X-Mod Evasion: Misrepresenting claims history by not reporting reportable injuries or by creating shell companies to give the impression of a non or low claims history to obtain workers' compensation coverage at a lower premium.
Original June 15, 2015